Aberdeen prepares for new funding model with Moody’s rating

Aberdeen’s rating, a sign of things to come. Photo: Aberdeen County C@P, Flickr.

Aberdeen City Council is set to announce an innovative funding model to finance its capital programme after it became the first Scottish council to gain an issuer credit rating.

Moody’s Investors Services has confirmed an Aa2 rating for the local authority, citing its “strong institutional framework” and “strong track record of operating performance”.

The council says that the rating will help it consider new finance mechanisms, including access to debt capital markets.

Issuing its rating, Moody’s said: “The council has demonstrated a solid financial record for the last five years, maintaining a net surplus against budget for each year.

“Gross operating balance to operating revenues was recorded at 8.3% in 2015/2016 and projected to average a healthy 7.5% over the next couple years if planned savings are delivered.”

While the Aberdeen economy has some exposure to the oil and gas industry, “the current fiscal framework, provides insulation from the impact for the council itself,” Moody’s said.

The ratings agency described the authority’s planned investment programme — which is set to increase debt to 145% of operating revenues over the next five years — as “ambitious”.

Aberdeen’s City Council leader, Jennifer Laing, said: “Being assigned a credit rating, a first for a Scottish local authority, is a vital step forward for us as we explore options to fund what is a comprehensive capital programme designed to support the city’s growth and diversification during a crucial period for Aberdeen.”

Finance, policy and resources committee convener Willie Young said the rating was “a clear demonstration of confidence in the financial management and controls we have in place, which provide us with the solid foundations we need as we build for the future.”

The council is expected to make a further announcement on how it will utilise the new rating within weeks.

The council has yet to confirm precisely what the rating will be used for. In 2012, the authority welcomed an initiative by the now-defunct development partnership, Aberdeen City & Shire Economic Future, to create a £500m bonds scheme.

Last month, a council report said that it was close to agreeing a new funding strategy for a replacement exhibition centre for the city.

The report said: “From the outset there were plans to secure an innovative funding model to deliver the replacement AECC.

“Several options have been pursued over the last year and discussions are now being finalised to enable the council to conclude a funding option which demonstrates the least cost option.”

In January, the Scottish Government and council agreed a £250m “city deal” for Aberdeen, while the government promised a further £254m for key infrastructure projects in the area.

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